What all of this means for the telecom industry, and how it could affect you

July 11, 2013

It’s been an exciting week for some of the biggest names in telecom.

On Wednesday, nine months after beginning its endeavor to gain a large stake in Sprint Nextel Corp., Japanese mobile carrier SoftBank officially closed the $21.6 billion deal. The merger was approved by the FCC on July 5 – about three months after Dish Network also submitted a bid for Sprint in an unsuccessful attempt to throw a $25.5 billion wrench into the union (a union that had been confirmed months earlier).*

The completion of this SoftBank-Sprint deal also comes in the wake of Sprint’s acquisition of 4G wholesaler Clearwire Corp. – a process that was also interrupted by a rival bid from Dish, forcing Sprint to raise its offer to $5 per share. But in the end, SoftBank purchased 78 percent of Sprint shares, Sprint purchased Clearwire, and Dish lost on both fronts.

What Does This Mean for the Parties Involved?

For Sprint

Rival carriers should keep a close eye on Sprint in the coming months. Though it’s dropping the “Nextel” part of its name and simply going by Sprint Corp., the company will retain its ticker symbol “S” on the New York Stock Exchange and remain an independent publicly traded company in the U.S. market.

According to a NASDAQ article, in addition to the $5 billion that SoftBank has already invested, it plans to invest billions more to improve Sprint’s status as a viable challenger carrier – maybe eventually becoming the world’s biggest mobile phone operator. As the current third-largest American mobile carrier, Sprint has been stuck behind Verizon Wireless and AT&T Inc. in expanding Long-Term Evolution (LTE) coverage. As of March, Verizon’s LTE network spanned 491 U.S. markets, as opposed to Sprint, with only 88.**

That’s why most of SoftBank’s investments will reportedly fund base stations for Sprint’s high-speed LTE network in the U.S. and Japan. But even with Clearwire’s spectrum open to them, Sprint’s task of building LTE coverage (essentially from scratch) is much easier said than done.

Sprint’s network would be based upon three facets: the old Nextel spectrum, the existing PCS spectrum and the new Clearwire spectrum. But only Sprint uses the Nextel frequency, and Clearwire’s frequency is unique in the U.S. Thus, Sprint can’t buy into any global ecosystems; to put together its phones and network, it must take one from each differentiated category (for a more detailed tech breakdown, click here). It remains to be seen how Sprint will handle this daunting LTE project.

This merger also makes AT&T the only completely U.S.-owned major wireless carrier (T-Mobile is a subsidiary of the German company Deutsche Telekom, and U.K.-based Vodafone owns 45 percent of Verizon Wireless).

For SoftBank

With SoftBank controlling 78 percent of Sprint’s shares, the combined company Sprint is anticipated to be the third largest in the world in terms of revenue. However, according to an article from Tech Crunch, the acquisition might put SoftBank into debt – especially since the merger became much more complicated and costly than originally expected, largely due to Dish’s late bid.

In fact, a day after the deal closed, the Japanese carrier’s credit rating dropped from A to A-. According to the credit ratings company, the acquisition will substantially increase SoftBank’s debt, and deterioration is “inevitable”. ***

But for now, SoftBank is still in good shape. With about 42 million subscribers, it remains the fastest-growing mobile carrier in Japan.

For Clearwire

Though Clearwire had impressively vast spectrum holdings, the company was nevertheless grappling with impending bankruptcy before the acquisition. The merger with Softbank and Sprint gave Clearwire a much-needed boost of funds to keep it from going under.

On July 8, the Clearwire board agreed to accept Sprint’s bid (which was raised two weeks prior in response to Dish’s bid) to buy the nearly 50 percent of Clearwire shares it doesn’t already own. As of last week, Clearwire will no longer be listed for trading on NASDAQ and expects no further trading.**

For Dish

It seems that the goal behind Dish’s big acquisition moves for Clearwire and Sprint was to gain a wireless presence; without either one, it’ll have to keep looking for a plan C.

How Will This Affect the Telecom Industry?

Due to the unexpectedly costly nature of the merger, Sprint must find the resources to build out a vast nationwide LTE network while also attracting customers in the face of fierce price competition. On top of all that, they must achieve this with financial resources that are more limited than either company had originally anticipated.

Despite these challenges, however, SoftBank predicts that, ultimately, the takeover will lower overall costs in network infrastructure and smartphone procurement.

In addition, this combination of SoftBank, Sprint and Clearwire boasts possibly the largest spectrum holdings of any wireless company in the U.S., and the merged company is in a very powerful position to create some real competition in the wireless market.**

How Will This Affect Me?

In this case, adding a stronger rival to the mix – one who can compete with some of the largest mobile carriers – is great for the growing base of U.S. wireless consumers. Not to mention the fact that unlimited data, innovation and affordability have historically been part of Sprint’s M.O.

Ideally, Sprint could use this opportunity to combat larger carriers’ rising prices by creating some stiff competition. And competition in the market is always a positive thing for consumers.

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